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Why General Motors Stock Crashed Today

By Howard Smith – Aug 4, 2021 at 1:07PM

Key Points

  • A sharp rise in the stock price so far in 2021 had built in higher expectations.

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Though the company boosted guidance, investors focused on an earnings miss this quarter.

What happened

General Motors (GM -2.57%) reported its second-quarter 2021 earnings today, and the stock is reacting strongly. Revenue of $34.2 billion handily beat expectations of about $31 billion, but earnings per share came in short of estimates, which is what investors appear to be focusing on today. As of 12:50 p.m. EDT, GM shares were down 8.4% following the report.

So what

Strong vehicle sales in the U.S. were led by Chevrolet trucks and crossovers. GM said in a statement it "gained significant retail market share in the full-size pickup segment in the United States." But bottom-line earnings were impacted by $1.3 billion in warranty costs due to vehicle recalls, most of which was for battery issues with the company's electric Chevrolet Bolt. 

red stock arrow crashing down after having previously gone up.

Image source: Getty Images.

Now what

GM did give investors some items of good news looking ahead. In a letter to shareholders, GM CEO Mary Barra said the company now expects full-year adjusted earnings before interest and taxes (EBIT) to be $12.5 billion at the midpoint of its range, compared to a previous midpoint estimate of $10.5 billion. 

But that wasn't good enough for investors after the stock had soared 39% year-to-date prior to this morning's report. The second-quarter results were at the low end of the company's prior guidance. GM CFO Paul Jacobson said the company's forward outlook is "cautious," but it was below what some analysts hoped for, according to reporting by CNBC. 

The company's long-term future depends mostly on how its new offerings of electric vehicles will perform. The first group powered by GM's Ultium battery technology will be launched this fall. And GM plans to have 30 EV models in North America and China by 2025. For investors who believe it can become an EV leader, today's stock drop could be an opportunity.

Howard Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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GM
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